$EWI Archives | Opportunity Identified

We live in the golden age of investing. Never before have individual investors had so much available to them for gaining investment knowledge, finding great investment opportunities, and the ability to take advantage of them at such a low cost. Our parents could only dream of having investment communities like seekingalph.com, investment blogs like [shameless plug alert] opportunityidentified.com, almost limitless fundamental information online, and technical analysis tools like stockcharts.com only one click of a mouse (“what’s that?” says your grandpa) away. And with the advent of ETFs, common investors can invest in pretty much whatever and wherever they want. Want to buy timber? Go for it. There’s an ETF for that (WOOD). How about palladium? Got you covered (PALL). Want to invest in foreign markets like South Korea? Be my guest (EWY). Do you really like coffee? Try JO. With sugar? Sure! (SGG). Investors today have the investment world at their fingertips.

At 360 Investment Research, we like to take advantage of another amazing tool available to all who want to use it: Relative Rotation Graphs (RRG) Charts™ [1]. These charts show you a security’s relative strength and momentum relative to a collection of other securities. Developed by Julius de Kempenaer of RRG Research, RRGs help us identify where we should be invested, or be looking to invest, within a universe of investments. Decisions should not be based solely on RRG analysis, but these charts definitely help us focus on those areas of the investment universe that deserve it. They give us the big picture within one picture. We appreciate their usefulness and you should too.

In this week’s RRG™ analysis, we’re going to look at the relative strength of the world’s largest markets, using the total world ETF from Vanguard (VT) as our benchmark. Basically, we want to see where in the world we should be focusing our attention. Accordingly, the following ETFs representing most of the world’s largest stock markets will be compared against VT:

SPY (S&P 500)
VTI (U.S. Total Market)
EWC (Canada)
EWQ (France)
EWG (Germancy)
EWI (Italy)
EWP (Spain)
FEZ (Europe)
PIN (India)
GXC (China)
MCHI (China)
EWY (South Korea)
EWH (Hong Kong)
EWJ (Japan)
EWA (Australia)
RSX (Russia)

Generally speaking, when looking at the ETFs above in the RRG™ below, those in the green leading quadrant are what you want to own; those within the yellow weakening quadrant should be on your watch-list (as they might be deteriorating), those within the red lagging quadrant should be avoided and those in the blue improving quadrant should be on your shopping list.

In the RRG™ below, the long tails represent the movement of each country’s ETF over the past 10 weeks in comparison to the world ETF, VT. So what do we see? The first thing to notice is the chart of VT in the upper right corner. Global stocks as a whole are down since July. Accordingly, when we analyze this chart, we want to be cognizant of the fact that maybe stocks as a whole are not where we want to be. That being said, if we are looking for stock opportunities, we see that we should be in the US (SPY and VTI have been leading the last 10 weeks) and looking for potential opportunities in Germany (EWG), France (EWQ), and Europe (FEZ) as they have moved from lagging to improving over the past 10 weeks. And finally, we should also look to China (GXC and MCHI) as they are subtly rotating from weakness towards leading.

In conclusion, if we have to be in stocks, we should be in the United States and looking for potential opportunities in Germany, France, Europe, and China.

[1] Note: The terms “Relative Rotation Graph” and “RRG” are registered trademarks of RRG Research.

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(click chart to enlarge)

At 360 Investment Research, we believe price is the manifestation of opinion and final arbiter of value. That is, price has the final say. It doesn’t matter if we think price should be lower or higher from a fundamental perspective. No matter the security (stocks, bonds, currencies, commodities, whatever), price determines value. Opinions don’t matter. Price matters. Period.

One of the exercises we go through is to look at equity indexes across the globe to see if we can find opportunities or confirm price action happening in the largest equities market in the world – the United States. If stocks in the US are making new highs, we like to see stocks making new highs elsewhere in the world. If the US market is doing well and so are some other countries, that bodes well for the global economy. However, if we see the rest of the world lagging behind, we find that to be a warning sign. We are currently in this situation now. When we look across the globe, all major indexes (except for Nikkei, S&P 500, and the DOW) are making new lows or lower highs. Not higher highs. Take a look at the chart summary below (click it to embiggen), which condenses charts of the most important stock indexes in the world (some are ETF proxies). It is quite telling. The Dow Jones, S&P 500, and the Nikkei (Japan) are the only indexes making new highs. We’d like to see more countries join the party by making new highs along with the US. Needless to say, we will be paying close attention to prices across the globe with a keen eye on the United States. You should be watching price action closely too.

Check back soon for part 4 in our 7 part series.

Relative Rotation Shows US Equities Leading | Opportunities Possible in Europe and China

It’s Just US Against the World [Weight of Evidence, Part 3 of 7]